* Volumes on AIM at record high of 1 billion shares/day
* Ban on AIM stocks in ISA accounts to be lifted
* ISA change could mean marked rise in AIM volumes -traders
By Tricia Wright
LONDON, July 15 (Reuters) - London's battered junior stockmarket is showing signs of recovery, with investors lured by asteady stream of flotations that have reduced the dominance ofhigh-risk miners.
Trading volumes on AIM, a sub-market of the London StockExchange that allows smaller companies to raise capital withfewer regulations, are at record highs and planned regulatorychanges could soon give them another boost.
Since mid-May, the 61.8 billion pound ($93.4 billion) FTSEAIM index - once known as the Alternative InvestmentMarket - has outperformed the main FTSE 100 index by 1percentage point.
In the previous two years, AIM had lost nearly a quarter ofits value against its blue-chip sibling as the heavy presence ofmany early-stage resources firms, which often require repeatedcapital injections, deterred investors.
An average of around 1 billion shares is now traded dailyand traders see turnover rising further in coming months thanksto government initiatives aimed at spurring investment ingrowing businesses.
Britain is set to enable individual savings accounts (ISAs)- popular tax-free products used by ordinary citizens - to holdAIM stocks from later this year, and will abolish stamp duty onshares traded on AIM next year.
While only part of the approximately 1.1 billion pounds ayear committed to stocks and shares ISAs will make its way intoAIM, even a little buying can have a big impact on prices ofthese largely illiquid stocks.
"We expect to see a marked increase in volumes," said MikeMcCudden, head of derivatives at Interactive Investor, whosesurvey of clients showed some 76 percent would invest in AIMstocks should they be made available through an ISA.
The easier listing rules have seen a revival of flotationson AIM while placements on the main market have dwindled. Sincethe market ground to a halt at the start of 2009, flotations onthe junior market have recovered to between one and 15 perquarter, according to Thomson Reuters data.
Some have met with an impressive take-up. Shares in softwarefirm WANdisco are worth five times their 2012 launchprice while those in Blur, an online marketplaceoperator for firms tendering for business, have nearly tripledsince its flotation last year.
RESILIENT
AIM-listed firms have proved more resilient to a recentequity market sell-off sparked by worries over the withdrawal ofcentral bank stimulus, and could retain this edge as more maturecompanies struggle for growth.
While the UK blue chip FTSE 100 index slid some 12percent from its peak in May to a June trough, the AIM indexfell only around 7 percent.
"When world growth isn't there, (AIM stocks) have theadvantage that they can organically double," said GervaisWilliams, managing director at Miton Group, whose top picksinclude consumer financial services business Fairpoint.
The shifting landscape of the index means it offers moresuch opportunities than in the past, and fewer high-riskexploration companies. Basic resources presently account foraround 11 percent of AIM, down from about 33 percent in January2011, and sit alongside a sizeable selection of technology,industrial and retail companies, according to FTSE.
Shrewd stock pickers could have cashed in this year byinvesting in cloud-based telephony firm Coms, whoseshares are worth 11 times their value at the start of 2013, orsecurity company Pentagon Protection, whose share pricehas quadrupled, both on contract wins.
"There are some individual good growth businesses there andif people think they understand those well and understand thebusiness models there is the potential," said Colin Mclean, SVMAsset Management managing director, whose holdings includeAIM-listed software provider Escher.
